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How to Lose $100 Million

From the living room of Barry Diller’s Manhattan apartment in the Carlyle Hotel, it is possible, on a clear day, to see the Midtown skyline, where the Condé Nast building rises like a ziggurat from the Gilded Age of magazine journalism. The view was an appropriate one for a man who in the autumn of 2010 was about to pour millions of dollars into the dead tree business.

Diller runs IAC, a portfolio of Internet companies that includes Match.com, OkCupid and Vimeo. His tolerance for risk is such that his friend David Geffen once described the fireplug of a billionaire as having “elephant balls.” Diller’s bets often pay off. He owns one of the biggest sailing yachts in the world. His neighbor is Mick Jagger. Print journalism, though, would be a different kind of gamble for him.

Joining Diller in his living room was 92-year-old stereo magnate Sidney Harman. A few weeks earlier, Harman had paid $1 to buy Newsweek from the Washington Post Co. The once-proud magazine was in a death spiral, having lost more than $70 million in the previous two years, after various failed efforts to save it had only resulted in circulation plunging to half of what it had been a few years earlier, an exodus of marquee writers and a full-fledged identity crisis. Harman—who had taken on what a well-placed source told me was nearly $75 million in liabilities for his $1—needed a turnaround artist.

And there she was, perched next to Diller, legs crossed, a perfect tousle in her blond bob: Tina Brown, the legendary former editor of Vanity Fair and the New Yorker. Famous for generating “buzz,” Brown had remade the magazine business in the 1980s and 1990s. By 2010, she was editing the Daily Beast, a two-year-old online magazine owned by Diller, which had generated much buzz while losing $10 million a year. Now, they were talking with Harman about a merger of the two money-bleeding properties. It made a certain kind of sense: Newsweek’s print advertising still fetched far more money than online ads, while the Beast presumably had the digital savvy Newsweek lacked, if no business model to speak of.

Already, Brown had met with Harman in the Hamptons to eat quiche and talk shop. She was intrigued by Harman’s merger idea and responded to it with a long letter laying out her vision for Newsweek. By the time they met in Diller’s home, Harman had taken to calling her “princess” and “my beauty.”

“Tina really, really wanted this thing,” says a person with knowledge of the negotiations. “She wanted one last stab at a print magazine.”

Her previous run at a magazine had ended famously in 2002, after she bombed through some $50 million in 2 1/2 years on a doomed monthly called Talk. In 2006, she had tried, and failed, to land the top job at Time. Now, venerable Newsweek represented a chance to restore luster to her career. “I think the business plan was that Tina was going to be fabulous,” says the person familiar with the negotiations. “I literally don’t think there was ever a different plan.”

“Tina really, really wanted this,” says a person with knowledge of the negotiations. “One last stab at a print magazine.”

As a member of the board of the Washington Post Co. when it sold Newsweek to Harman, Diller knew just how much trouble the magazine was in, but he warmed to the idea. Harman would carry more of the losses on his books, and Newsweek, despite an operating loss of nearly $40 million in 2009, was still able to generate $165 million in revenue from advertising and newsstand sales—cash that would conceivably allow Diller to pretty up the Beast’s balance sheet and keep analysts off his back.

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At one point, word leaked that Diller was considering such a deal, and Beast staffers were relieved when it looked like the negotiations might fall through. But the conversations promptly resumed. Staffers made jokes about escaping a burning building only to have it chase them down the street.

That burning building was now sitting in Diller’s living room. The group had started in Bemelmans Bar downstairs, where deals are struck over Gershwin and martinis, but Harman couldn’t hear much. So they repaired to Diller’s pad, where Harman launched into his pitch, explaining how he wanted to run Newsweek. He had a vague vision to “connect the dots” and synthesize weekly news. He wanted to play a role.

You have to let Tina be the editor she is, Diller told Harman. Making her into something she’s not simply won’t work.

It was right around this time that Brown, forever in high heels, stood to make her way to the bathroom. As she crossed Diller’s marble floor, she wiped out and smacked her face on the ground, according to a source who was not involved in the negotiations but who knows the Harman family. (“That probably happened,” Brown told me. “I’m always slipping on floors.”)

It was the type of mishap that Brown, weaned on British tabloids, would never omit from a story about the tribulations of the elite. And neither shall we, for no omen is more fitting. Three years later, Brown will have tumbled completely out of journalism, Diller will have lost north of $100 million ($70 million alone of it as a result of the Newsweek merger, he recently told me), and Harman will be dead. The NewsBeast experiment will be ruled a historic failure, perhaps the last great magazine flameout. This is the after-action report.

Tina Brown once told a jokeabout immigrating to America on the Concorde. She told this joke on Liberty Island while wearing a Donna Karan gown and hosting a $500,000 launch party for Talk magazine, a decadent fin-de-siècle bash for Hollywood stars, supermodels and assorted cultural and business titans (among them Barry Diller) who were ferried to the foot of the Statue of Liberty to picnic on blankets under Chinese lanterns.

Brown, a tony Brit from a show-business family, had become the editor of Tatler, a gossipy society monthly, in 1979, at age 25 and not long out of Oxford. She courted England’s upper crust while simultaneously lancing it. The royal family provided endless fodder. In Princess Diana, Brown also found a career lodestone and blueprint for public life: Diana embraced the spotlight but also turned that light onto serious issues.